Recent Policy Studies

Nicholas Eberstadt details the exponential growth in entitlement spending over the past fifty years. Today, entitlement spending accounts for a full two-thirds of the federal budget, up from less than one-third in 1960. Drawing on an impressive array of data and employing a range of easy-to-read, four color charts, Eberstadt shows the unchecked spiral of spending on a range of entitlements, everything from Medicare to disability payments. But he does not just chart the astonishing growth of entitlement spending, he also details the enormous economic and cultural costs of this epidemic. He powerfully argues that while this spending certainly drains our federal coffers, it also has a very real, long-lasting, negative impact on the character of our citizens. Also included in the book is a response from William Gaston, in which he questions Eberstadt’s conclusions about the corrosive effect of entitlements on character and offers his own analysis of the impact of American entitlement growth.

Alabama’s tort system is winning attention again, except this time for reasons opposite twenty years ago when it earned a dangerous reputation. The distance traveled can be seen in a recent decision by the Alabama Supreme Court, Sandoz, Inc. v. State of Alabama , 2012 WL 2866764 (July 13, 2012), which reversed a $78.4 million verdict against a pharmaceutical manufacturer. The Sandoz decision is a victory for the rule of law, as well as another cautionary tale for states who would consider hiring outside contingency-fee lawyers to aggressively pursue “regulation by litigation.” It also is a healthy sign of Alabama’s turnaround, paralleled—not coincidentally—by major business growth in the state including the announcement of Airbus’s recent decision to locate a U.S. manufacturing facility there.

In June, a divided panel of the U.S. Court of Appeals for the Federal Circuit held that the heightened pleading standards of Twombly and Iqbal do not apply to claims of direct patent infringement. This decision clarified pleading issues for now, but leaves, going forward, incongruent pleading standards that require correction. Because Form 18 in the appendix to the Federal Rules of Civil Procedure is the cause of these disparate standards, it should be modified or eliminated without further delay.

Compared to real property ad valorem taxation, tangible personal property (TPP) taxation creates greater economic distortions due to the inherent mobility of unat¬tached property. TPP taxation also has other unfavorable aspects such as greater complexity and higher compliance costs as compared to real property taxation. Fortunately, TPP tax levies have decreased nationwide in the past decade, and there are avenues for states to address some of the uncompetitive aspects of tangible personal property ad valorem taxation. For the seven states that continue to tax inventory, exempting inven-tory is an essential first step to reducing economic distortions, compliance burdens, and competitive disadvantages with states with no inventory tax. Second, since TPP is usually taxed locally, offering localities the option to exempt all or new property will create incentives for other localities to reduce or eliminate their reliance. Finally, a number of states have successfully demonstrated that all or most TPP can be exempted from the property tax base.

With increasingly fuel-efficient cars, gas taxes are an ineffective way to pay for roads. Gas taxes are also collected mainly by federal and state governments, requiring local governments to find nearly $30 billion per year in general funds to subsidize roads. Mileage-based fees would eliminate congestion and solve these problems, as well as allow private parties to build or take over some roads. In any case, the growing use of tolls means the federal government has a declining role in highway funding.

To be effective and held accountable, managers of decentralized transit units will require autonomy and authority. These managers will need to operate outside the typical civil service titles and regulations and the original constricting union agreements. Competitive contracting is neither a heretical notion nor an untested scheme. Many cities do it, and they have much experience to draw upon. It is time for New York to catch up and start saving hundreds of millions of dollars.

In recent years, broadband providers have introduced data caps and other plans that charge customers based on use. While regulators have generally approved of this shift, some consumer groups fear that usage-based pricing will lead to higher prices and deteriorating service. They also fear data caps allow companies like Comcast to protect their cable businesses from upstarts like Netflix. This article evaluates the merits of data caps and other usage-based pricing strategies. Usage- based pricing shifts more network costs onto heavier Internet users. This can reduce costs for others and make broadband more accessible to low-income consumers. Usage-based pricing can also reduce network congestion. While data caps can be used to hurt competition, antitrust law teaches that regulators should intervene only if consumers suffer harm and cannot switch Internet providers. Otherwise, broadband providers should be free to experiment with different pricing strategies to compete for customers and fund future network upgrades.

In a complete reversal of the widely accepted energy paradigms of declining domestic hydrocarbon production, dependence, and shortage, it is now realistic for America not just to feed the world but to fuel it as well. Policies that accelerate hydrocarbon production could create at least 3 million jobs and $3–$7 trillion worth of economic benefits, radically resetting energy geopolitics, and allowing the United States to make its way out of the current economic and jobs malaise. But it can do so only if the nation adopts new energy policies that reflect the technological, economic, and demographic realities of 2012. This report offers a number of policy prescriptions to facilitate the United States’ development of its enormous energy reserves, such as making the R&D tax credit permanent to encourage innovation, and establishing a single federal portal for approval of all major energy projects.

The result of creative interpretation of common law rules is the same as of creative interpretation of statutes. Ambiguity becomes a good thing because it leaves room for bureaucrats and judges to solve problems legislatures have failed to address. But ambiguity means uncertainty and bureaucratic and judicial discretion compromise the rule of law. Modern government lawyers may think it antiquated, but Chief Justice Hughes’s admonition to “Uncle Sam’s” lawyers attending the 1931 Federal Bar Association bears repeating: “You are the servants of the laws and not of men. It is not your privilege to bend or distort the law to serve either public or private ends.” Nor should it be the privilege of today’s government lawyers to rummage through the vast accumulation of Congressional enactments for some obscure law that a creative judge might be persuaded to apply to ends never imagined by Congress.

The world is awash in trade-distorting subsidies, and trade reform is badly needed. By curtailing federal subsidies to favored industries and by reforming countervailing duty procedures to ensure that they serve the rule of international trade law—rather than protectionist objectives—the U.S. government can reduce market distortions, restore some faith in free markets, and lead national and international subsidy reform initiatives.

The Court should abandon Caballes and no longer use its parent, the “reasonable expectation of privacy” test, in Fourth Amendment cases. Instead it should use the plain meanings of terms like “search” and “seizure” and the actual holding of Katz v. United States, which turned on physical protection of information—not “expectations”—to administer the Fourth Amendment.

This year’s 11th biennial fiscal report card on the nation’s governors examines state budget actions since 2010. It uses statistical data to grade the governors on their taxing and spending records—governors who have cut taxes and spending the most re¬ceive the highest grades, while those who have increased taxes and spending the most receive the lowest grades.

While America’s global health budget consumes only a fraction of one percent of total government spending, these funds can mean life or death for thousands around the globe. In straightened financial times, budget cuts should be based on an assessment of which programs work best and an evaluation of how to strengthen the most successful interventions while trimming the fat from less effective ones. This Outlook assesses the impact and effectiveness of the President’s Malaria Initiative (PMI) and finds that PMI has been remarkably successful in its management and control practices, cutting malaria incidence and child mortality rates, compensating for failures in other global health programs, and keeping corruption levels low. Despite all these strengths, PMI faces nearly 5 percent budget cuts (or even termination by the end of 2013), while other multilateral programs that are widely acknowledged to be less effective are picking up new money.

The Democrats’ attacks that Romney wants to raise taxes on the middle class are false. The real story, however, should be about the substantive policy visions of each of the candidates. Romney has proposed a bold tax reform that would broaden the tax base and lower statutory tax rates across the board. While maintaining preferential rates for savings and investment, his proposal repeals the tax expenditures that distort economic decisions and add complexity to tax returns. There is plentiful economic evidence that tax reform could result in measurable economic growth. Although Obama has no such plan for tax reform, his vision for the tax system appears clear. He has refused to endorse the recommendations of the Simpson-Bowles Commission, which would also have lowered statutory tax rates and broadened the tax base. Instead, his near-singular focus has been to raise statutory tax rates for high-income households and to leave untouched hundreds of special tax breaks for various political constituencies.

Al Shabaab as an organization will likely have to adapt after the loss of the city of Kismayo. The fall of Kismayo may intensify divisions within the group’s leadership over whether al Shabaab should pursue a national agenda to establish an Islamic state in Somalia or whether al Shabaab should pursue a regional, or global, agenda of jihad. There is already evidence that al Shabaab leaders focused on establishing an Islamic state in Somalia are beginning to splinter away from the group. The core leaders who believe in regional and global jihad will be strengthened should these nationalist leaders continue to peel away from the group. Resources that would otherwise be devoted toward financing a local fighting force and governing areas could instead go toward funding terrorist operations. Though the overall strength of the group may be weakened, the resolve of its leaders to pursue regional and global jihad has not been weakened.

The periodic debate around whether the United States should adopt a gold standard—a monetary system tied to the value of gold—has heated up again recently. Though some see such a system as a way to prevent inflation and excessive government debt accumulation, history has proven that it can lead to instability and sharp periods of inflation or deflation, as seen during the Great Depression and in the failure of the Bretton Woods monetary policy system in the early 1970s. Serious consideration of a widespread return to a gold standard would be warranted only if the Federal Reserve’s recent QE3+ quantitative easing measures and economic stability around the world lead to prolonged periods of high inflation and if a major world economic player—such as the United States or Great Britain—is willing and able to peg its currency to gold to provide a benchmark for price stability.

This paper proposes a simple measure to compute the distributional burden of federal debt. The measure is the real annual cost for servicing the debt and can easily be computed using the nominal value of government debt and expected real interest rates. The distributional impact can then be computed using assumptions about the method by which debt service is financed. Using this method, the author computes the average annual cost for each income group for one trillion dollars of debt and then apply the methodology to the historical accumulation of debt and to projected accumulations of debt under current law, current policy, and the Administration’s budget. Given high levels of deficit financing under nearly all policy outlooks, understanding the distributional burden of servicing debt is important.

On October 9–11, the North Atlantic Treaty Organization’s 28 defense ministers will meet in Brussels. The top priority for the United States at this ministerial meeting should be ensuring that NATO demonstrates resolve and commitment to Afghanistan—especially in light of the recent “green on blue” attacks. The Alliance needs to realize that reforms such as Smart Defense will be meaningless and the credibility of the Alliance will be in doubt if it is not successful in its current operations.

The Bureau of Labor Statistics (BLS) September payroll survey finds that employers added a net 114,000 new jobs, continuing the trend of slow employment growth during the recovery. The substantially divergent job growth reported in the household survey and the associated drop in the unemployment rate is inconsistent with other economic indicators and may represent statistical sampling error. Part of this sluggishness is due to the sharp decline in employment at start-up companies, which has hit record lows. Impending tax increases make it more risky to hire, and excessive regulations make it more expensive to start up new businesses. Congress and the Administration should reduce barriers to starting a business instead of increasing them.

Not only is free market capitalism good for the economy, says industry expert John Allison, it is America’s only hope for recovery. As the nation’s longest-serving CEO of a top-25 financial institution, Allison has had a unique inside view of the events leading up to the financial crisis. He has seen the direct effect of government incentives on the real estate market. He has seen how government regulations only make matters worse. And now, in this controversial wake-up call of a book, he has given a solution. Readers will learn how government incentives helped blow up the real estate bubble to unsustainable proportions, how financial tools such as derivatives have been wrongly blamed for the crash, and how Congress fails to understand it should not try to control the market—and then completely mismanages it when it tries. In the end, readers will understand why it’s so important to put “free” back in free market.

This empirical study tries to identify the main determinants of housing starts by measuring the responsiveness of housing starts to the mortgage interest rate compared with economic fundamentals at the national and regional levels. If housing starts are not responsive to changes in the mortgage interest rate, then interventions by government-sponsored enterprises in the housing market that lower mortgage interest rates would not significantly affect housing starts. Econometric analysis of the supply side of the housing market suggests that economic fundamentals, not mortgage interest rates, drive housing starts. Therefore, shutting down Fannie Mae and Freddy Mac would likely have little effect on the housing starts.

Washington is a high-debt state and has seen a growing percentage of the operating budget going to pay for debt service instead of funding other public services. SJR (Senate Joint Resolution) 8221’s proposed phase down of the state’s constitutional debt limit from 9% to 8% by 2034 would help reduce this problem while providing a more predictable capital budget cycle. Washington Policy Center recommends adopting reforms like those proposed by SJR 8221 that would help reduce the state’s debt burden on taxpayers. SJR 8221 would strengthen the state’s finances by implementing the recommendations of the Commission on State Debt and would free up more of the state’s operating budget in the future for education spending and other important public programs.

Initiative 1240 would allow 40 public charter schools to open over five years, eight schools each year. A charter school is a community-based public school that operates independently of central district management and administrative rules. Charter schools are tuition free and open to all students. Charter schools must comply with the same civil rights, nondiscrimination and public safety laws that apply to all schools. This Citizens’ Guide provides an overview of schools, summarizes Initiative 1240’s main provisions, reviews the academic success of charter schools in other states, and reviews the main arguments made against charter schools. Based on these findings, this study concludes that allowing a limited number of charter schools within public education would improve learning outcomes, reduce the dropout rate and open new learning opportunities for children, especially in communities that are underserved by the current education system.

For 10 years Washington has had one of the highest youth unemployment rates of any state. Washington also has had the nation’s highest minimum wage. Numerous studies show there is a cause-and-effect relationship between the two. Washington Policy Center has long recommended lawmakers allow employers to pay a training wage of 85% of minimum wage for young workers up to age 25. The law currently allows this temporary wage only for 14 and 15 year olds, but given Washington’s high unemployment rate for 16- to 24-year-olds, it is obvious a much larger segment of young workers is in need of relief. It should be noted that this policy enjoys broad support. A time-limited training wage would expand youth employment by making it economical for employers to hire low-skill workers just entering the work force. The result would be more young adults being hired, and reducing the long-lasting “wage scarring” and other long-term consequences created by prolonged periods of unemployment for young workers.

Biosimilar drugs offer the very real possibility of providing patients with quality alternative medicines and enhanced treatments at better prices. But bringing biosimilar drugs to patients depends on achieving a transparent, predictable, competitive marketplace, protected by strong intellectual property and regulatory systems. As the key issues highlighted in this paper are addressed by policymakers, regulators, physicians, payers and others, then as a consequence, high-quality, safe and effective biosimilars will provide patients and prescribers additional treatment options and expand access by offering lower-cost alternatives for biologic medicines. The emphasis, however, must stay laser focused on “high-quality, safe and effective.”

With the intent of improving public policy in the state of Tennessee, this policy report examines alternative funding techniques for transportation infrastructure that have been considered or adopted by other states, and explores the benefits and shortcomings of each. These include: public-private partnerships (PPPs); tax increment financing (TIF); tolling; vehicle miles traveled (VMT) taxes; congestion pricing, vehicle weight-mile taxes; state infrastructure banks (SIBs); vehicle C02 emissions, taxes, and fees; mass transportation; debit instruments; and increasing the fuel tax. In the end, this report concludes that the solution set that appears most desirable includes a VMT tax in which the vehicle owners and operators who benefit most from the road system bear the largest burden for maintain it.

Many key Missouri counties should carefully consider sales tax pooling. While it may sound great that cities compete with each other for retail development, the reality is that the effects of that government competition have been devastating for Missouri. It has resulted in tax giveaways and home takeaways, all for the sake of bureaucrats trying to plan our local economies. The government planning and the abuse of TIF have failed to benefit our state’s economy. It has not grown jobs or opportunity. There is a better way; a more free-market oriented way. Sales tax pools are a more free market change that encourages growth for the whole region instead of having cities fight with each other for retail development. Missouri counties need to move in that direction.

Environmentalists advocate wind power as one of the main alternatives to fossil fuels, claiming that it is both cost effective and low in carbon emissions. This study seeks to evaluate these claims. The analysis reported in this study indicates that 20% would be the extreme upper limit for wind penetration. At this level the CO2 emissions reduction is 90g of CO2 equivalent/kWh, or about 18% of total emissions from electricity generation. Using wind to reduce CO2 to this level costs $150 per metric ton (i.e. 1,000 kg, or 2,200 lbs) of CO2 reduced. Very high wind penetrations are not achievable in practice due to the increased need for power storage, the decrease in grid reliability, and the increased operating costs. Given these constraints, this study concludes that a more practical upper limit for wind penetration is 10%. At 10% wind penetration, the CO2 emissions reduction due to wind is approximately 45g CO2 equivalent/kWh, or about 9% of total.

By Pioneer Institute, et al., Pioneer Institute for Public Policy Research

White Paper, 10/04/2012

Past Competitions have often focused on specific policy areas. This year’s theme is “Restoring Federalism,” a seemingly more abstract notion that should interest you for three reasons: First, the explosion in the federal government’s scope has reached into minute aspects of how states and localities provide services. In some cases necessary to protect the rights of individuals, this federal mission creep into health care, education, and other services, is a recipe for sclerosis and poor quality service. Second, federal overreach minimizes policy experimentation and innovation; Justice Brandeis did not speak of a single “laboratory of democracy.” We no more think of the federal government as a hub of innovation than we do monopolistic companies. Finally, an ever expanding federal mandate has lowered an “accountability fog” on state and local government. With multiple government players involved in delivering services, who is accountable when there is a problem? Who do you call?

Individuals of faith, joined in communities of faith, forming a civil society imbued with the many faiths of those many communities, own this country. The state’s authority comes from the people, and its power—the power of its elected employees—cannot be greater than what they can rightfully give it. The people cannot give the state power over the conscience of men and women, because they do not themselves have any right to come between God and our fellow citizens. The sooner the nation’s elected employees remember these foundational truths, the sooner the nation may begin to recover a healthy notion of religious freedom.

Doctors and patients, not government, should control health care decisions. Changes are needed at the federal level to loosen regulatory reins and give states more flexibility and control over resources so they can develop programs to better serve patients who are dually-eligible for Medicare and Medicaid. The policies outlined in this paper intended to provide better care for dually-eligible patients already are beginning to be tested in demonstration programs around the country, and learning from these programs can help provide a roadmap to state and federal officials to improve the programs for the future. States are ready to take the lead.

Private competition in Medicare Part D has led to lower prices and more choices for seniors, and the program is saving money for taxpayers as well. Part D represents the first significant initiative to rein in health spending by restoring personal responsibility and incentives for savings to Medicare beneficiaries. In doing so, it shows that government can leverage free-market forces to cut costs while giving seniors more choices. The average basic premiums for Medicare prescription drug plans are half what they were expected to be at this point when the program was enacted in 2003 – about $30 a month vs $60 a month from the initial estimates. Congress would be well-advised to apply the Part D model of competition and consumer choice to modernization of the overall Medicare program in the future.

New FCC (Federal Communications Commission) rules regarding spectrum license acquisition and use offer the promise of a more predictable and certain administrative process. Reducing regulatory uncertainty will better incentivize wireless providers to engage in efficient and output-enhancing market transactions to obtain and use spectrum licenses. But a pro market emphasis in new FCC spectrum rules is critical to ensuring that regulatory uncertainty is reduced and that improved efficiency is realized. The restrictive, pro-regulatory approach taken in prior FCC orders reviewing transfers of spectrum licenses must be curbed. New FCC spectrum rules must reflect the dynamism of the wireless marketplace and the potential economic benefits flowing from heavy investment in next-generation wireless networks.

Nobel Prize-winning economist Milton Friedman proposed a system of school vouchers more than 50 years ago as a method for improving education outcomes and efficiency. Technological advances allow today’s school choice advocates to design programs that replace state-funded vouchers redeemable at a school of a parent’s choice with actual accounts parents can manage down to the last penny. Through ESAs, parents can choose between a much wider gamut of instructional approaches, including private schools, private tutors, online educational programs, or higher education. This key design feature creates an incentive for parents to judge education service providers both on quality and cost—a unique and crucial trait in publicly financed K-12 education. An ESA (Education Savings Account) approach will create powerful incentives for education service providers to provide the largest possible bang for the education buck.

Canadians often misunderstand the true cost of their public health care system. This occurs partly because Canadians do not incur direct expenses for their use of health care, and partly because Canadians cannot readily determine the value of their contribution to public health care insurance. In 2012, the estimated average payment for public health care insurance ranges from $3,418 to $11,401 for six common Canadian family types, depending on the type of family. For the average Canadian family, between 2002 and 2012, the cost of public health care insurance increased more than twice as fast as the cost of shelter, roughly four times as fast as food, more than five times as fast as clothing, and 1.6 times faster than average income. The 10 percent of Canadian families with the lowest incomes will pay an average of about $487 for public health care insurance in 2012. The 10 percent of Canadian families who earn an average income of $55,271 will pay an average of $5,285 for public health care insurance, and the families among the top 10 percent of income earners in Canada will pay $32,628.

Over the last decade, the domestic counterterrorism enterprise in the United States has added a significant amount of much-needed capacity. From the expansion of Joint Terrorism Task Forces (JTTFs) by the FBI to the development of intelligence fusion centers by the U.S. Department of Homeland Security (DHS), the resources now dedicated to gathering information, analyzing it, developing actionable intelligence, and acting upon it are substantial. With that being said, the domestic intelligence enterprise should base future improvements on the reality that governments at all levels are fiscally in crisis. Rather than add additional components to the system, law enforcement officials should streamline the domestic counterterrorism enterprise by improving current capabilities, leveraging state and local law enforcement resources and authorities, and, in some cases, reducing components where the terrorist threat is not high and the financial support is too thin or could be allocated more effectively.

The slow economic recovery since 2009 has not hewn closely to the patterns set by previous recoveries. One explanation that matches the key facts of this recovery-less recovery is that the fixed costs of production have risen. Higher regulation, tight credit, and other costs affect small, start-up businesses more than incumbents. Since start-ups normally create all of the net new jobs in the economy, job creation and investment are slack.

The Department of Homeland Security (DHS) has announced the addition of Taiwan to the Visa Waiver Program (VWP). Taiwanese citizens will now be eligible to travel to the U.S. for up to 90 days visa-free. However, key U.S. allies and friends—such as Poland, Bulgaria, Romania, and Croatia—continue to be left waiting to join the VWP. These delays make little sense given the extensive benefits that VWP expansion offers the U.S. in terms of national security, the economy, and public diplomacy. With demonstrated political stability and recent economic growth, Taiwan will be a well-deserved and welcome addition to the VWP. Congress and the Administration, however, should look to build on this momentum, decrease the barriers to greater program expansion, and promote broader efforts at visa reform.

To provide taxpayers and most legislators with more and better information about the Texas budget, the Foundation urges the Committee to consider enacting a number of transparency reforms, such as including more line items (and thus more information), limiting the size of line items to amounts that describe discreet programs, or if a program is very large, to discreet activities within those programs; having line items based on programs and activities should describe what the program does and where it is authorized in law; and ensuring that line items have more information about the source of funds (general revenue, general revenue-dedicated, federal funds, and other funds) being appropriated. The Texas Legislature should transition away from the strategic budgeting format and into a program-based budgeting layout.

Texas’ battle with EPA overreach is ongoing. While the state has won significant victories, other challenges remain out¬standing, and unless EPA changes course, additional litigation may be required. The results of these challenges will have ma¬jor implications for the relationship between state and federal power, as well as for the course of environmental regulations in Texas and the nation as a whole. It is important that the At¬torney General’s office be given the necessary support to con¬tinue this important fight. While state tax dollars are scarce, the fiscal implications of simply acceding to EPA’s dictates would be even more severe. The state should therefore con¬tinue to support these legal efforts, and, if necessary, include additional funding to the Attorney General’s office to hire out¬side counsel to defend the state’s rights in court.

There are better ways to fund government, and public schools, than the property tax. The Foundation recommends a number of alternatives, including reworking the state-local sales tax rate to 15.7 percent if the current sales tax base is used and includes the sale of property or 11.0 percent if all services that are taxed in at least one state are taxed in Texas and includes the sale of property. A scaled-down version of this proposal calls for simply eliminating the school district maintenance and operations (M&O) tax. These policies would strengthen Texas’ economy and jobs picture by increasing personal income in the range of $3.6-$3.68 billion in the first year, while promoting a net gain of 123.9 thousand and 337.4 thousand jobs over the course of five years. Finally, such reforms would likely result in more revenues coming into the coffers of Texas governments without a tax increase.

Using the ESF to fill a hole in a chronically overdrawn budget creates the danger that higher levels of state spending will deplete the rainy day account, which, by design, is not reliant on a stable revenue source. The ESF should not be tapped to sustain ongoing expenditures, such as for education or entitlements. Rather, it ideally should be used only for one-time emergency items or tax relief. Ultimately, in the interest of the state’s future financial security and to keep state spending from growing faster than is wise the Foundation recommends that the fund be used as sparingly as possible in the upcoming legislative session.

Given that the CPI-U (consumer price index for all urban consumers) average for the previous twelve months is 2.57% higher than the previous year, we can expect tax year 2013’s parameters to be roughly 2.57% higher than 2012’s. Projecting 2013’s brackets is more complicated than usual given the uncertainty surrounding the potential expiration of the Bush tax cuts (originally enacted in 2001 and 2003) and some more recent stimulus bill tax cuts (originally passed in 2009), but since tax parameters are adjusted for inflation in more or less the same way, the Tax Foundation can project next year’s parameters under a variety of scenarios with a high degree of certainty. This report provides estimates of the 2013 federal tax brackets under a number of these possible scenarios.

In August, the Urban-Brookings Tax Policy Center (TPC) released a report claiming to show that Mitt Romney’s tax reform plan would necessarily raise taxes on middle-class taxpayers and reduce their after-tax incomes, while giving a significant tax cut to high-income taxpayers. However, analysis of TPC’s report shows that if one assumes a 1 percent dynamic income growth effect under Romney’s plan (as interpreted by the Tax Policy Center), then low-and-middle income earners would experience a slight increase in after-tax income as opposed to a decrease. A more modest growth of less than 1 percent would imply a decrease in after-tax income for low-and-middle-income earners, but a more robust growth of more than 1 percent would imply a substantive increase in after-tax income.

While the debate over tax reform has been consumed with distributional issues, the economy continues to limp along in the worst recovery since the Great Depression. To be sure, this economy faces headwinds that even an ideal tax code will not address, but pro-growth tax reform can provide substantial benefits. The results of this study indicate that by lowering tax rates on investment and labor, the Romney tax plan would grow the economy by 7.4 percent, the capital stock by almost 19 percent, wages by almost 5 percent, and hours worked by 3 percent. The benefits would be widely enjoyed, as every income group would experience at least a 7 percent increase in after-tax income. It would benefit the federal budget as well, in that fully 60 percent of the static revenue loss from Romney’s plan would be recovered from taxing a larger economy.

Demand for the streetcars is driven not by the public but by the dreams of land-use planners and downtown boosters who imagine that aesthetically pleasing vehicles lumbering in slow circles through walkable areas will somehow prompt a boom in economic activity. Yet the fantasy that people will travel or move to a particular location purely for the pleasure of tootling around in a trolley has consistently failed to materialize. There are, however, some appropriate uses for the modern street car, such as connecting dense student housing, a university, a functioning downtown, and a regional shopping venue, hospital, or other large attractor in a community of around 100,000 people. There is also the possibility of private companies circulating fleets of old-fashioned streetcars as a means of transportation to be paid for by costumers. In any event, publically creating, funding, and supporting streetcar systems in most communities is an unwise policy.

By John C. Goodman, Devon Herrick, National Center for Policy Analysis

Issue Brief, 10/03/2012

Over the next 10 years, more than half the cost of ObamaCare ($716 billion) is to be paid for by reduced Medicare spending. The Obama administration had hoped to achieve these reductions by increased efficiency, based on the results of pilot projects and demonstration programs. The problem: The Congressional Budget Office (CBO) has said in three consecutive reports that these projects are not working as planned and are unlikely to save money. If the necessary savings do not materialize, the Independent Payment Advisory Board, a bureaucracy established by the ACA (Affordable Care Act), has the power to reduce doctor and hospital fees to such an extent that access to care for the elderly and disabled will be severely impaired. Thus, it is imperative to delay the scheduled Medicare cuts.

The historical evidence explains why the economy is performing so poorly. Many policies pursued by the Obama administration, as well as some pursued by the preceding Bush administration, have widely been thought to be stimulative. They have led instead to prolonged economic weakness, a careful reading of history suggests. To turn the situation around, Washington needs to stabilize the dollar, freeze and reduce spending, cut tax rates, and let the markets set interest rates freely. Ironically, economic stimulus implies government restraint. Copious evidence covering many decades shows that activist policies such as government spending, government employment, and the creation of money tend to restrain the performance of output, employment and stock prices. If so, the current failure of the economy to recover rapidly from the 2008 recession is easy to explain, since policies advertised erroneously as “stimulus” have been pursued on an unprecedented scale.

The Congressional Budget Office (CBO) estimates that up to 30 million people will remain uninsured even after the Affordable Care Act (ACA) is fully implemented. Perversely, regulations will encourage employers to drop their employee health plan. These and other incentives will induce millions of individuals to forgo coverage until they need costly medical care.

A recent Senate report found that the Social Security Disability Insurance (SSDI) program is plagued with weakness, inaccuracies, and inconsistencies in its process of approving disability claims and rewarding benefits, leading to an increase in the number of those wrongly added to the disability rolls, each of whom costs taxpayers at least $300,000 (the average lifetime cost of a single disability award). Evidence presented in this paper lines up with research findings that show that the SSDI program provides strong incentives for applicants and beneficiaries to remain permanently out of the labor force and hold off on terminating benefits until they’ve reached the federal retirement age or death. Ultimately, whatever the reasons, the current trends are disquieting: more backlogs in the application and awards process, the increasing rate of trust fund exhaustion, and an increasing burden to taxpayers and the disabled.

Residents of West Virginia were given the choice of a “basic” or “enhanced” Medicaid during an innovative redesign of the state’s Medicaid that occurred from 2007 to 2010. This paper uses the effects of that plan to estimate the causal impact of incentives within Medicaid to encourage better health care behaviors and reduce emergency room (ER) visits. Estimates show that the enhanced plan is effective in reducing certain types of ER visits for children. Overall, the net effect is an increase in the probability of an ER since far more individuals chose (or were defaulted into) the basic plan than the enhanced plan. The effects are largely driven by adults, who experienced a 7 percent increase in the probability of an ER visit and about a 10 percent increase in the probability of both nonemergency and primary-care treatable visits. This paper also finds evidence that placing the average member in the basic plan increases primary-care treatable ER visits and the opposite holds for the enhanced plan.

No other segment of the energy sector gets as much preferential treatment as the wind-energy industry. The wind industry has had 20 years of subsidies. This study finds, among other things, that on a per-unit-of-energy-produced basis, the PTC provides a subsidy to the wind industry that is at least 12 times greater than that provided to the oil and gas sector and 6.5 times greater than that provided to the nuclear industry. In addition, more than two-thirds of the American population live in states that have mandated the use of renewable electricity, and those mandates are imposing significant costs on ratepayers. Further, if viewed solely as a job-saving measure, a one-year extension of the PTC will cost about $329,000 per job. If the wind industry cannot manage to stay in business without subsidies, it doesn’t deserve to be in business.

By David G. Tuerck, Paul Bachman, Michael Head , Mackinac Center for Public Policy

Policy Brief, 10/03/2012

The findings of this brief suggest that in 2015, because of the 2008 Clean, Renewable and Efficient Energy Act which mandated that specific “renewable energy sources,” be used to generate 10 percent of retail electricity sales in Michigan by 2015, Michigan’s electricity prices will be significantly higher and employment significantly lower than they would have been otherwise. The effects of these increased energy prices will in turn lower employment and reduce disposable income. The “Michigan Energy, Michigan Jobs” proposal would increase this standard to from 10% to 25%, which would impose net costs on the Michigan economy of $2.55 billion, and lower employment by 10,540 jobs, while lowering disposable income by $1.42 billion. The cost caps included in this legislation will ultimately be borne by the ratepayers or the utilities, adversely affecting the economy either way. And regardless of the caps, taxpayers bear the cost of financing state and federal subsidies to renewable energy producers.

The North Carolina Coastal Resources Commission’s (CRC) forecast of sea level rise from climate change is far greater than the consensus estimate of the United Nations’ Intergovernmental Panel on Cli¬mate Change. The CRC forecasts 38 inches over the next 87 years, while the UN’s mean value is about 14 inches from 1990 through 2100.
Global warming forecasts that are associated with such a large sea level rise are demonstrably erroneous. Contrary to public perception, Atlantic hurricane activity exhibits no sys¬tematic changes in the last hundred years, despite the fact that many storms went undetected prior to the satellite and hurricane-hunter eras. Residents of the northern Outer Banks experienced sea-level rise in the last 100 years- caused mainly by geologic processes – greater than the mean value forecast by the UN for the next hundred years. It is therefore likely that people will similarly adapt in this century.

Through initiatives such as the Credit CARD Act of 2009, the Durbin Amendment to Dodd-Frank, and, finally and most importantly, the CFPB, Washington has systematically imposed punitive and ill-advised regulation and price controls on core consumer financial products: credit cards, debit cards, and mortgages. The results have been tragic—systematically driving consumers out of the mainstream financial system, withdrawing high-quality products, and increasingly driving many consumers to inferior substitutes such as payday lending, overdraft protection, and prepaid cards. Many consumers, especially lower-income consumers, have limited credit options already; a regulatory policy that raises the cost of lending to these consumers or deprives them still further of some of their currently limited choices is an unwise policy. Equally tragic is that the creation of the CFPB reflects a squandered opportunity to update, improve, and bring coherence to the nation’s consumer financial protection laws. Sensible reform proposals to the CFPB’s structure have been proposed and should be adopted soon.

Both the Bush and Obama administrations have demonstrated at least a rhetorical appreciation for the relationship between religious freedom and broader security equities. Yet in operational terms, the U.S. government has consistently treated religious-freedom promotion as at best a tertiary priority. While religious freedom exists as a normative good in its own right, its potential contributions to stability and security have been less explored, let alone appreciated. Understanding religious freedom’s relationship with national security would mean moving it from the periphery towards the center of American policy. Designing effective implementation policies will remain a challenge — yet a challenge worth embracing not only for American ideals, but for American interests.

Economics can provide a willing reformer with a list of measures that are needed for a successful transition to market economy. In this respect, the old-fashioned laundry list of macroeconomic stabilization, liberalization, and privatization, implemented credibly and in a short time frame, gives as good a policy prescription as any other. Indeed, there is not much else that the prospective reformers are in a position to do. The idea that policymakers ought to design a perfect set of working institutions and legal norms ahead of the reforms, and that they carefully plan the sequence of gradual transitional steps, is a display of fatal conceit. After 1989, a change in ideas and rhetoric transformed much of Central and Eastern Europe into normal, prosperous countries. The same can happen again in the Middle East and North Africa.

While it may seem obvious that the governments of poor countries are themselves poor, donors have largely failed to appreciate the enormity of the gap between the revenues of poor country governments and of their own governments. They have taken for granted the government-provided prerequisites that make their favorite policies work at home. Recipients and donors together will need to reinvent government for poor countries, with the full understanding that such government will not be very similar to government in rich countries. Government that is fiscally sustainable with domestic resources will be much more limited in function, scope, quality, and the number of government-enforced rights. This is not a question of ideology; it is a question of pragmatism. Only by bringing government functions and obligations back in line with government resources and capacities can poor countries reap the benefits of accountable and effective government.

One of the most widely accepted lessons of the Cuban missile crisis — that the discovery of Soviet missiles in Cuba constituted a stunning American intelligence success — needs to be challenged. Shifting the analytic lens from intelligence success to failure, moreover, reveals surprising and important organizational deficiencies at work. Fifty years after the Cuban missile crisis, intelligence warning is still plagued by many of the same challenges. Some of the most powerful barriers to effective intelligence warning remain relatively unexplored. Intelligence, at its core, is a collective enterprise. Organizations are not passive players, where individuals do all of the hard thinking and make all of the tough calls. Instead, organizations powerfully influence whether signals get amplified or weakened, whether analysis looks backward at continuity or leans forward toward disjuncture, and whether dissent gets highlighted or hidden.

It’s the sense generally held that the U.S. nuclear enterprise currently meets very high standards in its commitment to safety and security. The greatest concern, however, is that the same cannot be said of the nuclear enterprise globally. The biggest concerns with nuclear safety and security are in countries relatively new to the nuclear enterprise, and the po¬tential loss of control to terrorist or criminal gangs of the fissile material that exists in such abundance around the world. This policy review provides a short overview on the history of the nuclear enterprise, three guiding principles for efforts to reduce risks associated with nuclear weapons and nuclear power, and four interrelated recommendations that should be adopted by the nuclear enterprise, both military and civilian, in the United States and abroad.